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Transition planning for your business

Business man at his desk looking out the window.

What you should consider before, during and after. Selling to a third party. Transferring to the next generation. Just stepping away. Your business has always been such a huge part of you that it’s difficult to think about how you’d even begin to make a transition, let alone envision a future without it.

The good news is, exiting your business is not an all-or-nothing prospect. But it is a personal one. Based on our many years of experience working with business owners, we understand all that’s involved in what can be a complex process. Not only do we have a group dedicated to helping you make a successful business transition, we have wealth advisors and specialists who will work with your attorney, CPA and other advisors so you can have a smoother, more seamless experience.


We can help you put a plan in place and get you ready for your next chapter.

Topics to consider:

  • Creating a plan that integrates your personal, family and company goals
  • The most common exit strategies
  • What to consider when structuring a sale
  • Ideas for your next chapter after you exit

When I would think about the exit planning process, I felt overwhelmed by where to start and all the moving pieces involved. However, once I began discussions on my priorities and long-term goals, I wished I had started this process much earlier.

Have you laid the groundwork for your exit?

Exit planning is an ongoing way of operating your business and personal life.

Putting a plan in motion
You’re not alone if you’re unsure of how to go about stepping aside. Many owners’ identities are inseparable from their business, and planning to leave brings fear of the unknown. Visualizing the future and writing down your long-term goals and personal priorities can be the first step toward navigating the uncharted journey ahead.


What if you wait?
Without a plan, you might inadvertently relinquish control of your future through a variety of developments:

  • An unexpected departure. If a partner leaves, you might hasten your exit to help meet financial obligations.
  • A purchase offer. You might be tempted to sell to the first suitor and rush the sale, or you might yield to pressure and sell at a less than optimal price.
  • Additional taxes. A lack of planning can lead to higher taxes on a sale or unnecessary estate taxes for the family.
  • Your untimely passing. You might jeopardize business continuity and leave successors unprepared for the transition.

Exit planning is simply good business strategy. With it, a lifetime of great ideas and hard work can be fulfilled. Our team of advisors and specialists can help you focus on what’s most important to you professionally and personally.

What should your exit plan consider?

Actions in one area can affect another. Your business exit plan should include your personal financial goals along with those for your business.

Can your business continue without you at the helm?
A management team that’s capable of effectively continuing the business without the owner’s leadership is often critical to getting the most value and closing a sale. An equity incentive program could allow selected employees, particularly your senior management team, to benefit from the value they help create. This might also encourage certain managers to proceed through the due diligence process if you elect to sell your business.

What income do you need to support your post-sale lifestyle?
Your business may produce a significant cash flow for you and your family. Or it may handle certain personal expenses that you’ll need to pay after the business is sold. Cash flow modeling before the transaction might make you more comfortable with a particular sale price. Knowing that you can (or cannot) maintain your current or expected lifestyle after the sale can provide an important piece of information to your exit planning strategy.

Are you interested in passing assets to the next generation?
If so, it’s important to put some estate planning techniques in place well before the sale occurs for at least two reasons: valuation and discounts.

A gift of a business interest completed before the closing may have an appraised value less than the value you receive from the sale. It’s best to make the gift well before the closing to enable a gift-tax-efficient transfer.

For gift-tax purposes, the fair market value of a business interest is best determined by a qualified independent appraiser, who can perform an analysis to arrive at the fair market value of the interest being gifted. Often the value of the interest will be lower than the same percentage of the company’s total value due to two common discounts — a discount for lack of control and a discount for lack of marketability.

Are you charitably inclined?
If you are, consider a philanthropic strategy prior to selling your company to minimize capital gains tax or after selling it to maximize charitable income tax deductions. This also is the time to consider how personal and family values will inspire charitable giving and civic leadership after exiting your business.

What makes a business attractive?

If you keep your business exit-ready, you’ll always be positioned for what comes next. These characteristics tend to make a business inviting to buyers.


  • Contractually reliable revenue stream and cash flow
  • Good visibility into future financial performance
  • Strong history of profitability, with the potential to expand over time
  • Comprehensive and verifiable financial statements that exclude any nonbusiness or personal expenditures


  • Strong industry fundamentals
  • Leading and defensible or unique market position
  • Growth potential (organic and/or through acquisition)


  • Tangible assets (equipment, inventory, property in good shape)
  • Intangible assets (patents, brand, proprietary products, trade secrets, copyright protected)
  • Desirable location


  • Diversified and loyal customer base
  • Deep and reliable supplier base
  • Proven strong and competent management team

Which exit strategy is right for you?

A successful exit requires integrating your business, personal and financial goals. Reviewing various scenarios and your priorities for the future will help you shape an appropriate strategy.

Options to help  business owners decide whether they want to transfer the business within the family or sell to a 3rd party

Should you transfer to family or sell to a third party?

There are a range of options relative to what’s most important to you. Here are two strategies that many owners commonly use.

Transfer within the family
Business owners are typically more focused on the people and culture of their company than solely on financial gain. That’s why, for many, transferring ownership within the family is the preferred exit plan. They find it much more satisfying to pass their legacy on to someone who shares their passion and pride of ownership. But there can be challenges, including:

  • Which family member will run the business and ultimately make final decisions?
  • Is birth order, experience or interest in the business more important?
  • How will your leadership choice affect family members who currently work in the business, own shares or have a vote?
  • Are nonfamily members such as management, key employees, shareholders, partners and investors also qualified?

Compared with transferring within the family, selling to a nonfamily buyer might seem like a simpler prospect.

Sale to a third party
Financial buyers (private equity firms) generally are investors focused on the financial return they can achieve by purchasing a company — either in terms of expected future earnings growth or the return from a future sale (perhaps to a strategic buyer) or IPO (initial public offering).

Strategic buyers tend to be companies focused on seeking acquisitions as part of their own long-term growth strategy — maybe to eliminate competition, strengthen their own operations, expand into new regions or achieve other synergies.

Is one type of buyer preferable? That depends. Often, strategic buyers may be willing to pay a higher price than financial buyers. But strategic buyers are more likely to eliminate employees and restructure the acquired company. You need to consider several factors when choosing the best buyer for your company.

Whatever you decide, we can help align your transition strategy to your specific situation, priorities and goals.

How will your sale be structured?

A sale can take one of several forms that will determine some important consequences, like income tax treatment of payments you receive and liability exposure.

Sale of stock for cash or note
This is the simplest transaction. You and any other shareholders simply sell your stock for cash or a promissory note from the buyer.

Liability exposure* This generally results in the same business continuing with new owners/shareholders, and the new owners of the business bearing the burden of liabilities going forward.

Those dreams long held in the back of my mind — what I could someday do for my family and for my community— are starting to look real. It’s an awesome feeling. It’s a scary feeling.

Sale of stock for stock of the buyer
You exchange your stock in your current company for stock in the buyer, and you become a shareholder in the buyer’s company.

Liability exposure* You would remain an owner of the continuing/acquiring company and as such would bear a share of the burden of liabilities with the other owners.

Sale of company’s assets for cash or note
You remain a shareholder in your company, but now it owns cash or a promissory note. The next step might be to distribute the cash or note and dissolve the company.

Liability exposure* In general, if you sell the assets for cash or a promissory note, your company remains as an entity owned by you. As such, your company would remain exposed to any liabilities incurred by the company even if related to past events that become known in the future.

Sale of company’s assets for stock of the buyer
You remain a shareholder in your company, but now it would own stock in the acquiring company. The next step might be to distribute the stock and dissolve the company, in which case you would become a shareholder in the acquiring company.

Liability exposure* In general, if you sell the assets for stock, your company remains as an entity owned by you. As such, your company would remain exposed to any liabilities incurred by the company even if related to past events that become known in the future.

Initial public offering (IPO)
You remain a shareholder in your company, but it would become a publicly traded company, and your ownership percentage will become smaller.

Liability exposure* You would continue as a shareholder in the same company, though now it would be publicly traded. As such, you would bear the burden of a share of liabilities with the other owners.

What should you consider when negotiating your deal?

What you want as a seller, such as a higher price, can be in direct contrast to what the buyer wants. Here are some other areas that should be part of the deal.

Federal income tax considerations

Competing tax rules can offer advantages to a seller and disadvantages to a buyer, and vice versa.

For instance:

For sellers

1. For tax purposes, it’s usually best if a payment is taxed as a long-term capital gain.

2. An alternative option is a payment for a depreciable asset, which often is taxed partly as a capital gain and partly as ordinary income (called “recapture”).

3. The least preferred option is a payment taxed as ordinary income.

For buyers

1. For tax purposes, it’s usually best if a payment can be deducted currently.

2. An alternative option is a payment that leads to a depreciation or amortization deduction over a certain number of years.

3. The least preferred option is a payment that cannot be deducted or depreciated.

What if the negotiated sale price is contingent on the business’s future performance? An earn-out can help close the gap when a seller and buyer can’t agree on a sale price. It can also encourage the seller and key employees to remain with the business after the sale. However, be mindful of the financial metrics that determine the payout — operations and financial reporting may be outside of your control once the deal is closed.

  • From a tax perspective, will the payout be payment for services or part of the sale price? Sellers usually prefer viewing a payment as sale proceeds, and buyers are likely to prefer immediate deductions.
  • When will the seller be taxed on the potential payout? Usually, taxpayers will use the installment method of reporting gain when payment occurs over more than one year. Installments can be complicated, though, and depend on several factors, including the maximum selling price and the time period over which the payment could be received.

Covenant not to compete
Sometimes the sale of a business includes paying the seller not to compete for a period of time. Payments made to the seller in return for such an agreement are generally taxed as ordinary income, not capital gain.

Retention/consulting agreement
Some buyers pay the seller to remain employed as a consultant. Such payments are compensation and are taxed as ordinary income. If you’ll be staying on after the sale, consider how you’ll feel working for someone else and not being the ultimate decision-maker.

Have you thought about the emotional impact of a sale?

Putting a number on your business, the transaction’s complexity and timing can all add to heightened emotions. A knowledgeable team can help steady the course.

Finding the right number
Because of your deep personal connection to your business, attaching a numeric value can be difficult or even shocking when you learn that potential buyers have a lower value in mind. While getting the most money for the sale may be important, many owners balance financial gain with helping to preserve employment for their employees and concern for the business’s reputation within the community.

Selling my business was a hard decision, but I knew it was the right thing to do. Hiring the right professionals to help me was one of the best decisions I’ve ever made. Together we made it possible.

Leaning on the professionals
Running your business while also focusing full time on the sale can be overwhelming. It takes skill and experience to fully understand the selling process and all its complexities. Make sure to lean on your team of specialists, such as your investment banker, transactional lawyer and private banker, to help navigate those steps.

Timing matters
Even if you and your business are ready for a sale, will the market be in a favorable or unfavorable cycle? Several factors may determine your business’s value, including the number of businesses for sale, interest rates and the availability of capital.

These factors can shift the economics from those favoring the buyer to those favoring the seller, or the other way around.

What will your next chapter be?

You can better define your plan if, before you sell the business, you think about how you want to fill your time, build your legacy and pursue other passions.


  • Travel without the worry of being away from your business.
  • Build a vacation home where family can gather for years to come.
  • Support educating family members and foster other important relationships in your life.
  • Set up a family office to organize investments and to handle administrative duties that were previously part of the company’s operations.
  • Develop a family constitution to establish an investment philosophy and pass along family values.


  • Become a strategic partner, donor, volunteer or board member within the philanthropic community. Your experience as a business owner familiar with sound money management and making strategic use of limited resources, along with your personal values, may put you in a good position.
  • Consider donating to a donor-advised fund. Or think about creating a family foundation that would allow you to take advantage of certain tax benefits, come together as a family to build a philanthropic vision, and implement a long-term giving initiative in the areas you care about most.
  • Consult a philanthropic strategist to assess how one or more giving vehicles will enhance your legacy and charitable impact.


  • Fill the professional void with a new passion project, business idea or angel investing in other companies in your network.
  • Provide seed money to help a next-generation family member chase his or her entrepreneurial dream.
  • Become a consultant, serving on a board of directors or as an advisor at a new-business incubator.
  • Look for income-producing ideas, such as purchasing real estate, which can create an operating entity with income.

What will you do with the cash from the sale?

Placing your sale proceeds in a short-term liquidity strategy gives you time to create a “multibucket” approach to reinvesting them for future use.

Reinvesting sale proceeds

Short-term cash/lifestyle
Liquid assets, such as cash or short-term fixed-income investments

These funds are for near-term spending needs, such as mortgage payments, taxes that may be owed on the sale, charitable gifts, and living expenses for a year or two.

Long-term investment portfolio
A variety of assets, such as stocks, bonds and alternative investments

These funds are designed for growth to help provide for long-term needs and to maintain your lifestyle, typically in a portfolio invested over a period of time.

Opportunistic investments
Aspirational funds

These funds can be used for any future business investment, real estate acquisition or other projects.

Philanthropic goals
Vehicles such as a donor-advised fund or family foundation

These vehicles can be part of your philanthropic strategy to help ensure that your charitable goals are achieved.

Take action

Positioning your business for when you’ll exit requires careful planning, often starting years in advance. A strategic approach can help strengthen its value and create a smooth transition for everyone involved.

Whether you envision an outright sale or a transfer of your business to your children, we can provide fully integrated financial solutions, expertise and tailored advice while aligning your transition strategy to your business and personal goals.

Having a well-designed plan can help ensure that you exit on your terms.

Take action today.
Contact your advisor to discuss your exit options.

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